Warren Buffett Does Not Believe In EBITDA. Here’s Why

EBITDA is highly discredited as a source figure on which to base company valuations. There is too much of objectivity involved and EBIT / EBITDA are easily manipulated.

This article from ValueWalk looks at why Warren Buffet doesn’t believe in EBITDA as an indication of … anything, really.

The primary reason cash flow metrics like EBITDA or net income plus depreciation and amortization (D&A) are not fully reflective of a company’s cash flow is because they leave out two recurring cash flow changes that most companies experience every year: capital expenditures and changes in working capital. In other words, EBITDA overstates a company’s cash flow by not taking a charge for CAPEX and working capital while the other common method of simply adding depreciation back to net income also is inaccurate – adding back depreciation without any adjustment for a recurring capital expenditure paints the false picture of a company that does not need to spend any CAPEX to maintain its competitive position or unit volume. It’s not a realistic picture. Why Warren Buffett Does Not Believe In EBITDA

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EBITDA is at the same time the most discussed and most maligned measure of business cash flow. Simply put, EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization. The problem with EBITDA is that too often analysts or market participants or writers want to think that there is a single measure of cash flow that […]